Chinese shrug off $100 oil, but Beijing must beware

BEIJING, Jan 3 (Reuters) – Oil prices at $100 a barrel mean little to Chinese consumers insulated from the global rally by cheap fuel prices, but the latest market peak should sound a warning to Beijing over its disjointed energy policy.

China’s leaders extolled the virtues of energy efficiency at every turn last year, but refused to do the one thing that would immediately curb demand — lift the caps on gasoline and diesel prices, a move they fear would feed already-high inflation.


Strains caused by the widening gap between international and domestic markets may become unmanageable if oil prices stay in three-figure territory, but Beijing may struggle to escape from the vicious cycle its policies have created.

The higher international prices climb, the harder it becomes for Beijing to bring domestic fuel costs in line. But by waiting to act, they allow oil demand in the world’s second-biggest consumer to grow unchecked — fuelling higher prices.

“Consumers in China and India are being subsidised by their governments so they are not paying prices at $100 a barrel, they are still paying $40-$60 a barrel,” said Puru Saxena, a Hong Kong-based money manager overseeing over $370 million in assets, half of which in commodities.

That protection in China is magnified by the strengthening of its yuan currency against the dollar — which gained 6.9 percent last year — and the rising affluence of the growing middle class, which together have created an indifference to prices.

“I don’t know exactly how much money I spend per month on fuel, I never really count that,” said one 45 year-old telecoms manager surnamed Ma, at the wheel of a sleek black Buick.

Reuters